Structure of the presentation

2. Structure of the presentation • Introduction: Behavioural Approach • Firms as informationalprocessors • Decision-makingprocess • Locationalsearchprocesses • Locationalevaluation • Methods of locationalevaluation • Negation of behaviouralerguments • Foreign plant location • Conclusions

3. Structure of the presentation • Introduction: Behavioural Approach • Firms as informationalprocessors • Decision-makingprocess • Locationalsearchprocesses • Locationalevaluation • Methods of locationalevaluation • Negation of behaviouralarguments • Foreign plant location • Conclusions

4. Behavioural Approach • Homo Oeconomicus unrealistic • Decision Makers = Satisficers • Evaluation of information • Accepting the first satisfactory solution • Evaluation of coping with uncertainty

5. Decision-making • (McDermott, 1973) Leather industry could profitably locate anywhere. • (Taylor, 1970) Fireworks factory could locate anywhere aswell. • (Warren, 1979) Spatial limits to survival are broad for both iron and steel industry. • CONCLUSION -> The first satisfactory requirement can be easily met!

6. Structure of the presentation • Introduction: Behavioural Approach • Firms as informationalprocessors • Decision-makingprocess • Locationalsearchprocesses • Locationalevaluation • Methods of locationalevaluation • Negation of behaviouralarguments • Foreign plant location • Conclusions

7. Firms as informational processors (Simon, 1955, 1957) • ”Learning, estimating, information processing organism” • Do not enjoy perfect information nor act in a perfectly rational way • ”optimal decision” is an abstraction • Subjective judgements Satisficers have limited both information sources and rationality so they cannot evaluate all possible alternatives!

8. That does not mean that… … thefactory location israndom! Companies, according to behaviouraltheory: • Consideronly a limited number of choices • Search and evaluatealternativesin a stronglysequentionalway • Choosethe first solutionthatissatisfactory

9. The spatial bias (Abler, 1971) • Thedecisionaboutfactorylocationismade by a person or group of people • Individualpreferences: • Gossips • Living place • Investment place • Locationswhichare popular justbecausetheyare popular

10. Behavioural Matrix (Pred, 1967) • Firms – informational processors • Environment – information bed • Links between them – information flows The actual knowledge firms have about the market varies according to length, frequency and type of the contact

11. Behavioural Environment Part of theobjective environmentwhich representsthetotal sum of information intheeconomy. In such an environment firmssend and receiveinformationflows.

13. Uncertainty • Imperfectinformation • Itisimpossible to predictthefuture • Raisesthepossibility of unexpectedoutcomes • Trueuncertainty • Knowledge gap

14. Structure of the presentation • Introduction: Behavioural Approach • Firms as informationalprocessors • Decision-makingprocess • Locationalsearchprocesses • Locationalevaluation • Methods of locationalevaluation • Negation of behaviouralarguments • Foreign plant location • Conclusions

15. Decision-making process • Approachbased on identification of distinctprocesses • Stimulous • Search • Evaluation • Approachbased on geographicalscale • Choice of country • Choice of region • Choice of sites

16. Stages in the locational decision-making process

17. Satisficer firms exist as open learning systems • If there’s no reason to change established practices, firms are satisfied with their relations • Disturbances forces decision making • Stresses • internal sources: changes in corporate philosophy • externally generated stresses – actions taken or threatened by customers, rivals or governments, unexpected occurrences • Stresses may occur suddenly or evolve slowly

18. Structure of the presentation • Introduction: Behavioural Approach • Firms as informationalprocessors • Decision-makingprocess • Locationalsearchprocesses • Locationalevaluation • Methods of locationalevaluation • Negation of behaviouralarguments • Foreign plant location • Conclusions

19. Expansion at existing site New site investment vs

20. Locational search processes • New and Small firms – location of new factories within the existing mental maps of the decision-makers • Large firms are more likely to delegate some functions of locational search and evaluation and to conduct analyses which include hard data on the hard factors or tangible features • However senior management have the final word

21. Locational search processes • When firms, especially medium-size and large firms, expand interregionally they usually take more than 1 region into consideration • Locational search and evaluation involves time and cost which can be significant • Investment in a foreign country – requires an assessment of its distinctive social, economical and political conditions

22. Structure of the presentation • Introduction: Behavioural Approach • Firms as informationalprocessors • Decision-makingprocess • Locationalsearchprocesses • Locationalevaluation • Methods of locationalevaluation • Negation of behaviouralarguments • Foreign plant location • Conclusions

23. Locational evaluation • Principal factors for a selection of a region: • Government regional policy • Labour relations • Markets and strategic communications (general transportation and communication requirements)

24. Global scale • Multi National Corporations want stable governments but also pro-development governments • Being democratic is of lower importance e.g China

25. Structure of the presentation • Introduction: Behavioural Approach • Firms as informationalprocessors • Decision-makingprocess • Locationalsearchprocesses • Locationalevaluation • Methods of locationalevaluation • Negation of behaviouralarguments • Foreign plant location • Conclusions

26. Methods of locational evaluation • At least 2 broad tendencies • Large firms ---> formal, systematic analysis of locational alternatives • Systematic analyses are more likely to be conducted at community/site scales of analysis than at regional or international scales

27. Methods of locational evaluation • Some firms use some ad hoc procedures • Increasing number of firms conduct comparative cost analyses of tangible location factors and ‘weight ranking’ schemes • The evaluation cannot be reduced to a mechanical calculation of costs (due to intangible factors of location factors)

28. Kepner and Tregoe’s method of site evaluation • Decision-makers identify a set of ‘musts’ or minimum requirements • Drawing-up a list of ‘wants’ • Wants are assigned a weight + each locational option is assigned a score • The score and weight are multiplied for each locational factor

29. Timing – crucial matter • Postponing the decision about investment may trigger losses – market upswings and downturns

30. The advantages of MNCs over smaller firms • In contrast to small single-plant firms, MNCs enjoy geographically extensive behavioural environments • Access to formal and informal information networks • Having prior experiences in choosing new locations + more resources to plan for new location + the ability to afford specialised, locational consultants

31. Structure of the presentation • Introduction: Behavioural Approach • Firms as informationalprocessors • Decision-makingprocess • Locationalsearchprocesses • Locationalevaluation • Methods of locationalevaluation • Negation of behaviouralarguments • Foreign plant location • Conclusions

32. The dismissal of behavioural arguments – ‘The world is our oyster’ hypothesis • The largest MNCs are already global and familiar with all cultures and territories • Communication is virtually spatially costless • MNCs are promoting standardisation of production all over the world - as their power increases the cultural differences decline • Trade liberalisation and deregulation foster capital mobility

33. ‘The power of geography’ hypothesis • The resistence of local culture to universalising tendencies • Nations are still influential forms of organising territory • Even for established MNCs locating in foreign countries remains a problematical excercise

34. Structure of the presentation • Introduction: Behavioural Approach • Firms as informationalprocessors • Decision-makingprocess • Locationalsearchprocesses • Locationalevaluation • Methods of locationalevaluation • Negation of behaviouralarguments • Foreign plant location • Conclusions

35. Foreign plant location • Foreign firms favour established core regions of host countries • Foreign firms are more likely to invest in peripheral areas, especially when there are some incentives offered • Incentives: popular in the UK in the 1970s, not popular in Germany, the Netherlands or Denmark

36. Foreign plant location • National culture is important in understanding the location preferences of foreign firms. • Foreign firms may excercise the equivalent of personal preference in choosing locations • Foreign firms change locational preferences following initial entry into a country

37. Industrial location policy in a behavioural landscape • Industrial location incentives can serve to change locational preferences in 2 ways • They serve as signal to firms to take a given region into consideration • It offers compensation for any costs concerned with learning or uncertainty

38. Structure of the presentation • Introduction: Behavioural Approach • Firms as informationalprocessors • Decision-makingprocess • Locationalsearchprocesses • Locationalevaluation • Methods of locationalevaluation • Negation of behaviouralarguments • Foreign plant location • Conclusions

39. Conclusions • A weakness of the behavioural approach – it provides no sense of conflict or the controversies that often surround matters of location • In behavioural location theory, imperfect information and bounded rationality modify the decision-making capabilities of Homo Economicus, while neoclassical cost and revenue surfaces are similarly modified by information surfaces or mental maps

40. THE END